Remittance City Review #1 – What is the impact on the remittance cities of South India state Kerala?

THE VERDICT

50% wealthier per head increase in the national average since Kerala citizens’ emigration to the Gulf and a dependence on the oil industry for the jobs provided there.


January 17, 2017

Zeynep Lokmanoglu

Zeynep Lokmanoglu

I was reading an article recently, on how several expensive museum constructions came to an indefinite halt in Abu Dhabi due to the growing concerns and activism concerning the treatment of immigrant workers in the Gulf Area.

The ways in which workers live (and die), to work in the Gulf States reached the attention of the broader global media a few years ago, especially after Qatar received the nomination for the 2022 FIFA World Cup. This hasn’t stopped the workers from seeking employment in these states where the payments they receive translate to much higher in their home cities. Often faced with the decision to leave their jobs and asking for improvements in their conditions, workers ended up staying out of dependence.

What I didn’t realize was how large the sums of money that were being sent home by these workers. Sometimes enough to have a whole region in a country run dependent on money coming in from emigres. The article that I was reading included a description of a state in South India, that had transformed under the influx of the money coming in from those working in the Gulf. This state is called Kerala. According to a 2014 report, approximately 2.4 million Keralites live abroad, a million of Gulf’s immigrant workers are from Kerala and remittances make up about 36% of Kerala’s GDP. Kerala is also the fastest-urbanising state in India. “In 2001, 74% of Keralites lived in rural areas. By 2011 the proportion had fallen to 52%.” (source: The Economist). Fascinated, I started doing research to learn more about Kerala and how it serves as a dramatic example of what is generally known as the “remittance economies”.

Foreign workers contribute to the economy of their home country through “remittance”, the act of sending back money they earn as immigrants. Remittance economy serves as one of the largest financial inflows to developing countries. According to a World Bank study, remittances reached an estimated $582 billion globally and developing countries received about $440 billion of that total.

The capital flow coming from remittance is most significant in major labour-exporting countries such as India, China, Philippines and Mexico but is not at all a phenomenon that is exclusive to them. This interactive map from Pew Research Center offers a good visual demonstration of the remittance relationships between countries using data form 2015. For example, Canada receives about 775 million annually from immigrants in the United States, and the United States receives about 688 million from immigrants in Canada. While these large numbers are impressive, they look like peanuts in light of the 16.3 billion that China receives annually from immigrants in the United States, or the 12.6 billion that India receives from immigrants workers in Saudi Arabia.

Remittance economy directly affects urbanization in cities that send the highest number of workers abroad. With the larger sums of money coming in from higher paying foreign jobs, whole cities develop through the families of the workers who stay behind and use the money they receive in their own cities. Kerala, is a major example of a state economy that is largely dependent on remittances. Kerala receives the highest amount of remittances of all the states, mostly coming from workers from the state who send money from the Arab states from the Persian Gulf. The immigration started in the Gulf boom of the 1970s and 1980’s and hasn’t slowed down in a significant way since.

The remittance economy has undeniably made the state of Kerala richer, as evidenced from findings that the state is now about 50% wealthier per head than the national average. The state has been drawing in a number of immigrants itself, directly correlated with the wealth created for the residents by its own workers living abroad. There are workers coming into Kerala from places like Bengal in order to feed the construction needs of Kerala residents who have found wealth through remittance. The city has seen a construction boom like no other, that also displays the income discrepancy with those holding remittance wealth and those who are not. The urban outlook of some cities in Kerala has seen an influx of “Gulf houses”, colorfully painted homes and apartment buildings that line the coast owned by families with a family member living abroad. The low income households still live in “local houses” that are generally situated away from the coast.

In 2016, there was a drop in oil prices in the Gulf, causing concern for immigrant workers in the region and their families. The drop directly affected the money Kerala sends back, causing lower amounts of remittances. Remittances have been the main supporting factor for the state’s growth up until now, and without them the state would have a hard time sustaining itself. The lower oil prices managed may have managed to slow the influx coming into Kerala, but it’s not noticeable, at least not yet. A dreaded recession may be in the cards for Kerala. A decline in emigration is expected over the next five years, because of several reasons. The shaky future of oil, the decrease in the youth population in Kerala, and the improvement of economic opportunities in other states of India as opposed to the Gulf.

For now, this remains as a possibility for the future. Construction and urbanization is still prevalent in the ever developing state. The World Cities Report of 2016 reveals that the urbanization in Kerala has seen a huge shift in just over two decades, and it predicts that it will continue over the next decade.

The knowledge that the economies of entire regions in one country is able to sustain itself through the economy of another country, is a strange and visually demonstrative example of wealth distribution and how it manifests itself globally. Kerala is a good place to look at, to understand what the future of such relationships could hold, if the conditions change.

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